January 8, 2007
Happy new year! We’re off to an exciting but challenging start to this year in the bleeding disorder community. Witness what is happening right now, that should have you sitting bolt upright: a hostile takeover bid for Caremark. Do you use Caremark as your homecare company? Keep your eye on what is happening.
A year ago, my newsletter PEN predicted that specialty pharmacies would continue to merge as the home care industry faced unprecedented change while battling the “coming storm” in the insurance industry. Cost-cutting methods by payers are forcing the industry to rethink how it does business; and mergers provide ways to gain power, market share and possibly lower prices.
We’ve seen a tremendous number of mergers and acquisitions, but nothing on the scale of what is happening now. Express Scripts, one of the nation’s top pharmacy benefit managers (PBMs), has launched a hostile bid for Caremark, one of the largest factor providers, and also a PBM. The surprise $26 billion bid came in December.
In “Taking Center Stage” (PEN, May 2005), PEN explained that PBMs are business middlemen hired by employers and insurers to negotiate better prices from drug manufacturers and retailers. They encourage employees to use lower-priced generic drugs and less expensive mail-order pharmacies. PBMs are hired to save employers money by managing healthcare contracts and costs. But in the current wave of mergers, PBMs are emerging with great power, and can exert strong influence over pricing, especially for biological products like factor.
The Los Angeles Times predicts that the Express Script/Caremark combined company will control about 30% of the total PBM market, with $49 billion a year in revenue. That’s compared to its next biggest rival, Medco (which owns Hemophilia Health Services), with $38 billion a year in revenue. The LA Times also notes that not everyone is confident that more consolidation is good. There’s no guarantee that this merger will eventually pass along savings to employers and employees, including those with hemophilia. It’s true that the merged company will be the most powerful in factor distribution. Smaller, independent factor providers–a traditional and important part of the bleeding disorders community–face troubled times ahead as they play David to the industries’ newly-created Goliaths.
For more information, see “Express Scripts tops CVS in hostile bid for Caremark Rx.” Daniel Costello, Los Angeles Times, December 19, 2006, and visit archived article at www.kelleycom.com/archives.html.